EXECUTIVE SUMMARY

The purpose of this paper is to provide baseline evidence on the performance of local and regional knowledge economies in New Zealand. This is the second phase of the Department of Labour's knowledge economy project, after the first phase established that New Zealand's knowledge economy could be measured using methodologies developed in the UK.

The knowledge economy consists of those sectors with a highly skilled workforce and which invest heavily in knowledge-based assets (intangibles) such as R&D, staff development, product design and development, and brand equity. These sectors represent an increasing share of the New Zealand economy's output and employment, and are the most likely source of the future gains in innovation and knowledge that will be needed to improve productivity.

This paper defines the knowledge-intensive sectors as those industries that meet the following two criteria: at least 25 per cent of the workforce must be qualified to degree level or higher, and at least 30 per cent of the workforce must be employed in the professional, managerial and scientific and technical occupations.^[1]

The summary findings include:

• Employment in the knowledge intensive sectors grew more quickly than in the rest of the economy over the period 2000 to 2008. The knowledge intensive industries in the 'Professional, Scientific & Technical Services' sector accounted for most employment growth in the private sector, though 'Financial & Insurance Services' also grew. In the public sector there was significant growth in knowledge intensive sectors across health, education and public administration.
• Among the major individual industries seeing the most rapid growth were 'Professional and Scientific Equipment Manufacturing', 'Management and Related Consulting Services', 'Computer System Design and Related Services' and 'Architectural, Engineering and Technical Services'. The most significant employment drop was in 'Newspaper, Periodical, Book and Directory Publishing', while there was sharp growth in the much smaller industries of 'Software Publishing' and 'Internet Publishing and Broadcasting'.
• An increasing share of national GDP is generated by the private knowledge intensive sectors, with the 'Communications' sector growing particularly quickly and 'Real Estate and Business Services' and 'Finance and Insurance' also growing over the past ten years. Early signs are that the economic downturn has only accelerated the growth in the share of national GDP represented by these industries. The public knowledge intensive sectors also generated a slightly increased share of national GDP compared to ten years previously, mostly due to output growth from 'Education, Health and Other Services'.
• Private sector employment in the knowledge-based economy is centred in the Auckland and Wellington regions, while public sector employment is much more decentralised. Central government administration is focussed around Wellington but the education, health and local government sectors provide knowledge intensive employment across the country.
• There is an urban hierarchy of knowledge economies. Auckland and Wellington cities constitute the top tier. The second tier is headed up by North Shore City, Hamilton City and Christchurch City.
• The fastest growing territorial authorities in terms of private knowledge-based sectors lie outside the main urban areas of central Auckland and Wellington. Manukau City, Hamilton City and Christchurch City are the three fastest growing major urban areas. There has also been some rapid growth outside of the main centres, in areas such as Queenstown-Lakes District.

In formulating initiatives to improve productivity and increase skills levels, it is important to know how the knowledge-intensive sectors are distributed around the country and where they are growing.

This methodology can be used to track knowledge economy trends at the regional and sub-regional level, identifying which knowledge intensive sectors are growing most quickly and where. This information can be used to ensure that adequate and relevant training is available locally, to plan the development of local economies, to market the area to skilled workers and to help employers identify where there are pools of workers with the skills they require.